1 July 2023 heralds a significant change to how accountants and tax agents do business, shaking up their relationship with their clients and how they get new ones.
Instead of being able to simply add a new customer to their books, the ATO will require tax practitioners to verify their client’s identities before any services are provided. The verification requirements extend to clients already on the books and individuals who represent clients.
We’ve partnered with Hall & Wilcox, a leading Australian business law firm, to make sense of these new requirements.
This article details the new requirements, their impact, how tax practitioners can prepare for these changes, and how FrankieOne makes navigating this new requirement refreshingly simple.
What is the change?
From 1 July 2023, under the ATO Online services for agents terms and conditions (Terms & Conditions), agents must undertake proof of identity (POI) before providing tax or BAS agent services:
- to new clients
- on an ongoing basis to existing clients, as appropriate.
Tax practitioners must apply the ATO’s guidelines for client verification, known as the Agent Client Verification Methods. These guidelines outline the minimum requirements, practical steps, and methods to perform client verification when using ATO systems. Tax practitioners are encouraged to go beyond these requirements if they still have concerns about a person’s identity, even if they meet the minimum requirements.
The TPB’s Practice Note TPB(PN) 5/2022 provides an overview of what client information tax practitioners should verify and the types of documents they can use to verify identities. Under the Agent Client Verification Methods, agents are required to verify all clients prescribed in the TPB(PN) 5/2022.
By following the ATO guidelines in conjunction with the requirements prescribed by the TPB, tax practitioners are deemed to have met the client verification requirements of both agencies.
What is the impact?
This change presents a significant impact on how tax professionals run their practices. The standard for verification is high, and the onus of the verification lies with the practitioner.
The verification requirements go beyond sighting identification documents. Tax practitioners must verify their individual client’s full name and residential address (or date of birth). For businesses, this extends to verification of their ABN or ACN.
The documents containing this information need to be sighted and verified using various methods, including the Document Verification Service. Visual verification alone may be inadequate, with the ATO advising that “the responsibility to verify client identity ultimately rests with you as the tax practitioner” (ATO, 2023).
This leaves tax practitioners with the duty to manage risks such as remote clients, potential fraud and clients having inadequate verification documents.
More information on the requirements is available on the ATO website.
What you need to do to be ready
From 1 July 2023, tax practitioners need to have mechanisms to verify client identities, including access to a Document Verification Service (DVS) provider.
There are also robust record-keeping requirements. The ATO and TPB do not require practitioners to retain identity documents due to privacy and identity theft risks. Instead, the ATO and TPB require a contemporaneous record including the following information:
- The date and time that proof of identity checks were undertaken
- The name and title of the person undertaking the proof of identity checks on behalf of the registered tax practitioner (if someone other than the registered tax practitioner)
- The identification documents that were sighted, and whether they were originals or certified copies (it is not recommended that registered tax practitioners record entire identity document numbers; however, practitioners may wish to record the last or first digits of identity document numbers as evidence that they sighted the documents)
- How the identification documents were sighted (for example, in person or electronically)
- Confirmation that: (a) The identification documents are clear and legible and identify the client or individual representative; and (b) There does not appear to be reason to question the identification documents provided
In addition to verifying client identities, accountants and tax agents need to also:
- Have a system to record the verification process as detailed above
- Have a system to show which clients have been verified, which are currently in the verification process, who haven’t been verified and which ones failed verification
- Contend with the administrative and process overhead created by these requirements
- Manage the frustration felt by new clients having to go through additional hurdles
If you’re not ready
If you are not ready by 1 July 2023 then you will be in breach of the Terms & Conditions. If you are in breach, you must immediately:
- advise the ATO of that breach; and
- stop using the ATO’s online services for agents until the ATO advises you can.
How FrankieOne helps
FrankieOne can help you get ready, quickly.
Becoming a business that’s compliant with these new requirements is quick and effective with FrankieOne. So effective that there would be almost no disruption to business operations.
The FrankieOne Platform makes identity verification refreshingly simple. Through a single connection, businesses can access the best-of-breed identity verification providers, including the Document Verification Service. With over 350 providers from around the world available through the platform, tax practitioners can verify the identities of foreign clients.
FrankieOne is a future-proofed platform. With the looming possibility of tax professionals having to also perform AML/CTF due diligence on their clients as a result of Tranche 2 of AML/CTF reforms, tax practitioners can simply turn on this feature in the FrankieOne Platform.
The burden of managing the verification process and record keeping is also eased by FrankieOne. The Case Management Portal provides a single view of the customer, showing their verification status in real-time. The Audit Trail provides comprehensive information on each individual's verification journey.
The platform also provides a delightful customer experience for end clients. Through the conversion-optimised Smart UI, clients can quickly and easily perform the verification process on their mobile phone or desktop computer.
FrankieOne is a comprehensive solution to these new requirements. If you’d like to explore what FrankieOne can do for you, please reach out to us today.
Tax practitioners will have to make significant changes to their businesses to be compliant with these new Client Verification requirements. With July 1 just around the corner, there is not much time left to make these changes.
FrankieOne presents a simple, effective and future-proofed solution to meeting these requirements.
We’d like to thank John Bassilios, Partner & Fintech and Blockchain Lead at Hall & Wilcox for contributing his expertise to this article. Hall & Wilcox is a leading Australian business law firm.